1. Field of the Invention
This invention relates to computer systems and methods used to process data pertaining to financial assets, such as loans, securities, and so on.
2. Description of Related Art
The introduction of the mortgage backed security (MBS) has made the dream of owning a home possible for a much larger number of individuals. Frequently, when a borrower takes out a loan to purchase a home, that loan is subsequently pooled with other loans and used to create an MBS. The MBS is an investment instrument that can be sold to investors in the global capital markets. Upon sale of the MBS, lenders can turn around and make new loans using proceeds from the sale. In effect, the MBS is a way for the global capital markets to provide capital for loans to fund home ownership. The increased availability of capital reduces interest rates as compared to the interest rates that would otherwise be available, and therefore makes home ownership more affordable for an increased number of individuals. While the mortgage backed security system has worked exceptionally well, a more efficiently operating MBS market would likely result in increased investment in MBS and ultimately in further improvements in home ownership rates.
Currently, the MBS market operates according to the following mechanism and timeline. In an exemplary scenario, after a lender has made numerous loans to various borrowers, the lender may pool the loans and sell the loans to a secondary market participant herein referred to as a “purchaser.” A “purchaser” of loans is generally any entity that purchases loans for cash or MBS. In the context of the present transaction, the purchaser purchases the loans with MBS which the lender can then sell to investors. The investor in an MBS typically owns an undivided interest in the pool of mortgages that serves as the underlying asset for the security. As an MBS holder, the investor receives a pro-rata share of the cash flows from the pool of mortgages. The loans are held by the purchaser as trustee for the MBS investor.
During the term of the loan, the borrower sends monthly payments in connection with the loan to the lender. The function of receiving monthly payments from borrowers and aggregating the monthly payments with monthly payments from other borrowers is one component of loan servicing. Because the lender receives a fee from the borrower during the life of the loan for performing such servicing, servicing is commonly thought of as an asset which is separate from the loan asset that is sold to the purchaser. In other words, a loan is commonly thought of as comprising both a loan asset (corresponding to the right to receive principal and interest payments from a borrower, and ultimately securitized at least in some instances into MBS) and a servicing asset (corresponding to the right to receive a servicing fee from the borrower, typically configured as part of the interest payment). It may be noted that, in some instances, a lender may not be interested in performing loan servicing itself. In such instances, the lender may sell the loan to an entity commonly referred to as a loan wholesaler, which typically will turn around and sell the loan asset to the purchaser and retain the servicing asset. Accordingly, reference will now be made to a “servicer” as a generic way of referring to lenders (in the situation where the lender sells the loan asset to the purchaser for MBS and retains the servicing asset so as to perform servicing itself) and wholesalers (in the situation where the lender sells the loan and servicing assets to a wholesaler, and the wholesaler turns around and sells the loan asset to the purchaser for MBS but retains the servicing asset so as to perform loan servicing).
The servicer receives monthly loan payments from the borrower during the term of the loan. Typically, the loan payment is due on the first of the month although in many instances a grace period will also exist (e.g., the borrower may be given until the fifteen of the month to make the loan payment and have the payment be considered timely). At some point after the fifteenth day of the month and the fourth day of the following month, the servicer will report servicing data (e.g., data regarding borrower payments) to the purchaser. On the fourth day of the following month (the MBS reporting deadline), the purchaser will publish reports to MBS investors regarding principal and interest payments received from borrowers and resulting payments due to investors.
Typically, both the servicer and purchaser will maintain data regarding principal and interest payments received from borrowers and resulting payments due to investors. However, there are various reasons why the servicer data and the purchaser data may not be in complete agreement, most of which relate to errors in data of one or both entities. For example, in connection with adjustable rate mortgages (ARMs), the interest rate applied to the mortgage typically changes during the term of the mortgage. As a result, instances arise in which the servicer and the purchaser have different data regarding when or how the interest rate applied to an ARM should change, resulting in differences regarding amounts that should be paid to investors. As a practical matter, such differences in data are typically only identified during the term of the loan, when data of the servicer and data of the purchaser do not agree as to how much interest should have been received from the borrower.
Given that reports are due out to investors on the fourth day of the subsequent month, it becomes apparent that certain tradeoffs exist under current processes. If the servicer reports servicing data immediately before the fourth day (e.g., on the second day), then there may not be enough time to detect and resolve all discrepancies between servicer and purchaser data, particularly when one considers that servicers may be reporting data for millions of loans or more. On the other hand, it is also possible to have the servicer report servicing data much earlier, such as shortly after the fifteenth of the month in which borrower payments are due. This allows more time to resolve discrepancies between servicer and purchaser data. However, oftentimes, additional payment data is generated after the fifteenth of the month and it is desirable for this payment data to be taken into account. For example, if a borrower makes a late payment, the late payment may not be reflected in the payment data if the payment data is generated earlier. Further, if a borrower pays off a loan on the twenty-fifth of the month, the MBS investor should really only receive interest payments from the borrower through the twenty-fifth of the month. However, under the current arrangement, if a servicer reports servicing data shortly after the fifteenth of the month, and a borrower pays off a loan on the twenty-fifth of the month, the interest that is not paid by the borrower after the twenty-fifth of the month will typically be paid by the servicer. This is undesirable from the standpoint of the servicer.
Therefore, a need exists for processes and systems which allow servicers to report data as close to an MBS reporting deadline as possible while also reducing the number of errors that occur and the number of discrepancies that need to be resolved. Further, a need exists for such a system that allows faster resolution of any discrepancies that are discovered while processing data, i.e. the discrepancies can be corrected in near real time. Such systems and processes would result in a more efficient MBS market and more reliable data and reporting, which in turn would likely result in further improvements in home ownership rates.